Passport panic: EU proposes expanded ESMA authority

The European Union is proposing a significant regulatory shift that could reshape how cryptocurrency firms and exchanges operate across the region. The European Securities and Markets Authority (ESMA) is drafting plans to transfer supervisory powers from national regulators to ESMA in an attempt to unify oversight.

Verena Ross, chair of ESMA, told the Financial Times that this transfer aims to:

“ensure that we are addressing the continued fragmentation in markets and resolve that to create more of a single market for capital in Europe”

Under the EU’s landmark Markets in Crypto-Assets (MiCA) regulation, which came into force last year, ESMA was initially proposed as the central supervisor for crypto firms. However, concerns about ESMA’s capacity led to oversight being delegated to the 27 national authorities, a decision Ross now describes as inefficient. This inefficiency was underscored in ESMA’s July peer review, which criticised the Malta Financial Services Authority for approving a pan-EU crypto licence without fully assessing material risks.

Some claim this model has lead to inconsistent licensing standards and regulatory arbitrage with firms opting for jurisdictions with lenient requirements and “passporting” them across the EU bloc, risking uneven oversight. Specifically, Malta, which has positioned itself as a crypto-friendly jurisdiction since 2018, has become a magnet for major exchanges. Some industry professionals have likened the process of obtaining a MiCA licence in Malta to “ordering McDonalds”.

France, Italy and Austria have voiced concerns with the current framework, with President of France’s securities watchdog, Marie-Anne Barbat-Layani, and Bank of France Governor, François Villeroy de Galha, calling for ESMA to centralise supervision. AMF warned that they would consider blocking passporting rights for crypto firms licensed in other EU countries, describing it as an “atomic weapon” to prevent regulatory loopholes.

The push for centralisation is not without resistance. Smaller EU countries like Luxembourg, Malta, and Ireland fear that empowering ESMA as the central watchdog could undermine their financial sectors. Specifically, Claude Marx, head of Luxembourg’s financial supervisory body, warned that giving ESMA full control would create a regulatory “monster.”

Despite these concerns, momentum is building. The EU’s strategic priorities of defence, green energy, and digital transformation require substantial private capital. Ross argues that breaking down regulatory fragmentation is essential to unlocking these funds.

Former European Central Bank president Mario Draghi’s report last year also identified ESMA’s transformation into a unified regulator as a cornerstone for boosting Europe’s capital markets, akin to the US Securities and Exchange Commission.

In a speech last month Maria Luís Albuquerque, the EU Commissioner for financial services confirmed that the Commission is considering transferring supervisory authority to ESMA for major cross-border entities, including crypto firms and stock exchanges.

ESMA has already gained new powers. From next year, it will oversee providers of consolidated tapes for equity and bond prices and agencies issuing ESG ratings.

These proposals aim to harmonise regulatory expectations across the EU, particularly in licensing and supervision. While they promise long-term benefits such as streamlined operations and greater consistency across the bloc for consumers, they could put greater discretion in the hands of a single pan European regulator and stifle competition and the development of local capacity across the bloc.

Written by Tahlia Kelly and Steven Pettigrove